Thinking of getting a payday loan online? Don't do it

The bills need to be paid and you don’t have enough money. A short-term payday loan may seem like the only option to get you past the crisis.

These days, payday loans are just a mouse click away. And some of the offers are mighty tempting: a “guaranteed” loan without a credit check.

Better watch out: This could be a set-up for a scam.

Because of the exorbitant interest rates, payday loans are never a good deal for the borrower, but using an unknown online payday loan store can be even worse.

According to the National Consumers League’s Fraud Center, scammers are creating bogus payday loan sites to snag their victims. These sites look completely legitimate. Some even have fake video testimonials to instill confidence.

After the application is completed, the soon-to-become victim is contacted by the scammer who has good news: The loan can be processed as soon as they wire money to cover the taxes or insurance or application fee. All of these fees are bogus and should never be paid.

“Unfortunately, the loan never appears and the consumer is left holding the bag,” said John Breyault, director of NCL’s Fraud Center. “Even worse, the victims are asked to send more and more money to collect the fictitious loan. These scammers are very good at stringing you along and putting the pressure on if you refuse to pay any more.”

The requests for payments normally continue until the victim catches on to the con or simply runs out of money.

Sade Wells of Philadelphia knows how convincing the bad guys can be. She needed money to move to a new apartment and applied for a $1,000 loan from an online payday loan store.

James Smith (you can bet that’s not his real name) called and told Wells she was approved for the loan once she wired the company $245. She did.

Smith called again. This time he told Wells the loan had to be insured before it could be transferred to her bank account. That would cost another $375. So she wired off the money.

By the time Wells pulled the plug on this scam, she had wired the company $1,600. In hindsight, she realizes this was foolish, but at the time Smith assured her she’d get the money back with the loan.

“I’m mad. I’m late on my rent and I can’t move now,” she told me. “I’m hoping and praying that I can get my money back.”

Unfortunately, that’s not likely to happen.

It isn’t easy to track down these online scammers. They’re very good at hiding. They use fake street addresses and anonymous IP addresses. They change names and locations to avoid law enforcement. They may even be operating from a foreign country.

Warning: This is not an isolated case. People across the country are being taken for large sums of money. They tell similar stories of being instructed to send payment after payment to get a loan that never came.

Other potential dangers

To apply for an online payday loan, you need to supply personal information, such as your bank account and Social Security number. Ask yourself, do you really want to give this sensitive information to an unknown company via the web? Fraud experts tell me it isn’t worth the risk.

“The offer of short-term, quick-approval loans could simply be a vehicle to gather personal identifying information from desperate consumers for no other purpose than identity theft,” said Adam Levin, chairman of IdentityTheft911.

And what will the company do with this information, even if it isn’t run by crooks?

“We see a huge number of websites that are designed not to originate loans, but to collect personal information and sell it to the highest bidder,” said Tom Feltner, director of financial services at the Consumer Federation of America. “We call them lead-generators rather than lenders.”

By giving out this information, you could wind up getting bombarded with more fraudulent offers.

If you are asked to pay money to get money, it’s probably a scam. While most legitimate payday lenders charge a hefty fee, this is generally assessed when you repay the loan. Requests for up-front fees before a loan can be granted are a sure sign that something is fishy.

If you’re asked to wire money or put money on a prepaid card before you can get a loan, it’s a scam.

Online payday loan scammers usually ask for fictitious “fees” to be wired via Western Union or Moneygram. These are bogus. In a new twist, scammers are also telling victims to load funds onto a prepaid card. Victims are then instructed to either send that card to the fake lender or provide the access code on the back of the card which gives the con artists access to all the money on that card.

Just because an online payday lender looks legitimate doesn’t mean it is.

Online payday loan scammers are experts at setting up legitimate-looking websites and providing official-looking documentation. If you’re not familiar with a company, don’t rely on these materials. Check with your state banking regulators, the Better Business Bureau, and your state’s corporation commission to make sure the business is legit.

If you’ve been approached by or lost money to an online payday loan scam, report it to NCL’s Fraud Center. This information will be forwarded to the appropriate law enforcement agency.

The bottom line

A payday loan should be your last option for getting some cash. If you truly have no other alternative, visit a brick-and-mortar store in your area. At least you know they’re regulated in some way by your state government. You also know where to find them if there’s a problem with your transaction.